Midterm Week 1 Flashcards
What is the objective of Auditing?
The verification of Information
What is assurance engagement?
when a practitioner (auditor) is engaged to issue a conclusion on a subject matter for which the responsible party is accountable to intended users. The engagement performed by a auditor or consultant enhances the credibility and reliability of the subject matter.
Why is there a demand for auditing and assurance services?
Many users require or inquire of the outcomes of engagement assurances.
What are the different types of assurance services?
(FICCO)
Financial Statements: an auditor expresses an opinion on whether or not financial statements have been complete in accordance to the company’s financial framework
Internal Auditing: an independent audit performed within the entity that evaluates risk management, internal controls, and governance process
Compliance: and audit that determines whether a entity has conformed with regulations and processes of a company
Corporate Social Responsibility: corporation voluntarily taking on activities including social and environmental reporting
Operational: Combines financial, performance and compliance audits with a range of auditing activities.
What are the different auditing opinions?
Qualified Opinion: opinion is provided with a material misstatement or lack of evidence in opinion but it is not pervasive enough to impact the financial statements
Adverse Opinion: opinion is provided where a material misstatement is present and pervasive enough to impact financial statements
Disclaimer of opinion: opinion is provided where a lack of evidence is not significant enough to base an opinion
What are the responsibilities of the preparer?
Preparer is responsible for ensuring the information contained in financial statements is:
relevant, reliable, comparable, understandable and fairly presented
What are the responsibilities of the auditor?
Auditors are responsible for using professional skepticism (remaining independent), professional judgement and due care
What is material? materiality?
the amount or disclosure that is significant enough to impact the user.
the maximum amount allowed for the auditor to still issue a “clean” audit opinion.
What are the causes of information risk?
(CIRR)
Complexity: terminology, legal and accounting information disclosed is too complex and advanced for the user
Incentives: disclosing information that benefits the company/ achieve objectives
Remoteness: information being reviewed making it difficult to determine which information is reliable
Reliability: concerns of the overall reliability of information given to users.
What are the different levels of assurance and explain them.
Reasonable: High but not absolute assurance on reliability of the subject matter, i.e External Audit
Moderate: Negative assurance “nothing came to our attention”, i.e review engagement
None: auditor completes the set of tasks and reports factually on the results, i.e compilation engagement
What is the expectation gap?
the difference of expectations of assurance providers vs financial statement users.
complete assurance –> reasonable assurance
audit opinion completely accurate –> opinion has not material misstatements
they will find fraud –> will assess risks for fraud
